CSWDC - Coventry City Council

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means that the total value of the preference shares Coventry holds in the Company reduces from £9.95m as at 31 st March 2012 to £7.55m, releasing the value during 2012/13 in cash. Officers in Finance and Legal Services are currently working up proposals on the Draft Budget report which will come to Cabinet in November or December 2012. This work will take account of both the benefit described in this report and the longer term financial returns from CSWDC in seeking to balance the medium term financial position of the Council in the current challenging context. Recommendations: Cabinet is recommended to: 1. Make a recommendation to Council through the Draft Budget report in November/December 2012 on the proposals for allocation of the additional £1.4m arising from this decision. List of Appendices included: None Other useful background papers: None Has it been or will it be considered by Scrutiny? No Has it been or will it be considered by any other Council Committee, Advisory Panel or other body? No Will this report go to Council? No 2
Report title: Coventry and Solihull Waste Disposal Company (CSWDC) Preference Shares Redemption 1. Context (or background) 1.1 CSWDC operates the Energy from Waste plant. It is a joint venture between Coventry and Solihull Councils. Coventry Council owns 66 of the 99 ordinary shares at £1 each. The remaining 33 ordinary shares are held by Solihull Council. 1.2 Coventry and Solihull Councils also hold a total of £14.925m preference shares in CSWDC. Coventry City Council holds £9.95m (two thirds) of preference shares. These preference shares were issued by CSWDC at the point at which it was established as a way for the Council to provide initial financing into CSWDC. They are shown as a liability in the CSWDC balance sheet and as an investment in the Council accounts. This means they can be paid back in full or in part to the Councils at any time, subject to agreement by both Council shareholders and CSWDC, which would include an assessment of the ability of CSWDC to afford the repayment. They are a different type of share to the ordinary shares, for example no dividends are paid on the preference shares, they would be repaid first before ordinary shares in the event of the Company liquidating its assets and only carry voting rights in certain circumstances. 1.3 CSWDC has paid dividends on the ordinary shares in recent years as the profits from the Company have allowed. A dividend is declared by the CSWDC Board subject to the performance of the business, the level of distributable reserves and the amount of cash held. A total dividend of £3m was received by the Council in 2011/12. The Council’s Medium Term Financial Strategy currently assumes a £1m ordinary dividend in 2012/13 and ongoing, as an estimate of the future likely dividend stream. 1.4 Over recent months, the Council, along with Solihull Council, have engaged with CSWDC to see what additional returns the Company might be able to provide to the shareholders given the financial challenges that both Councils face. CSWDC have sufficient distributable reserves and cash to enable £2.4m to be released to the Council in 2012/13. This is an increase to the estimated £1m return included in the MTFS. 2. Options considered and recommended proposal 2.1 The Councils have worked with CSWDC to establish both the level of cash return and the mechanism for its release. The options for release of the returns to shareholders in 2012/13 are through a dividend payment or through a redemption of preference shares. 2.2 The option of redeeming preference shares enables CSWDC to approve an increase in the amount of cash they can release from the business in 2012/13, compared to the amount the Council have estimated and budgeted for. This can be used to support the Council’s spending plans and a recommendation will be made in the Draft Budget report to Cabinet and Council as to the proposals for allocating the additional £1.4m arising from the option. This option also has significant benefits for the Company as it strengthens their balance sheet by reducing their liabilities. This in turn strengthens the value of CSWDC to its shareholders. 2.3 The recommended option is for a CSWDC to redeem preference shares totalling £3.6m, £2.4m of this relating to Coventry City Council. This will reduce the total value of the preference shares Coventry holds in the Company from £9.95m as at 31 st March 2012 to £7.55m, releasing the value during 2012/13 in cash. 3
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CSWDC - Coventry City Council

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